Page 48: of Maritime Reporter Magazine (May 2014)

48 Maritime Reporter & Engineering News • MAY 2014

Can you give our readers an overview of your busi- ness today. The Premium income and growth factors in the marine insurance industry are very stagnant right now. And competition is quite heavy in all areas. In the

U.S. market and in the marine market in general, there are new players. The London market has gotten more aggressive over here.

There has been a prolonged contraction among ship owners and operators. How has this impacted your business? To put it simply, there is not a big increase in marine transportation. (While there is a boom in the energy markets), a lot of the shale oil and gas is car- ried via pipeline and railroad car into various ports. (In short) today there are fewer, bigger ships.

In the long range, do you see the shale oil and gas as having a bigger impact on the U.S. marine business, and as a result WQIS as well? There are two answers to that question. The fi rst is “what is the U.S. government’s position on ener- gy export,” because that will have an impact. And then you have to consider how the various states will react to the transit of the oil through their states. Barge are the safest means to transport oil. It has the best historic loss record and the best safety record.

What else do you count as most recently impacting your business? The Macondo oil spill is impacting pollution cover fairly heavily.

How so? BP made the decision to set up a $20B dol- lar fund and, as a response to the spill, to throw at it every resource that could be found, whether or not that resource was productive or effi cient. They established in the minds of a lot of responders who were new to response, because we haven’t had a lot of big spills, an idea of how a spill response should be run. And the BP fund paid claims that are not required, per se, by law.

So today oil spill responses, especially in the areas of the Gulf and lower Mississippi River, are taking on a different kind of life and are becoming much more expensive because there is an overreaction in terms of resources being put on the spill. There is an increase in ineffi ciencies in the responses because people trip over each other. It’s just too much, and has built an expecta- tion on the part of some parties that they deserve to be paid for claims that should not necessarily be paid.

To what do you attribute this overreaction? I think they had a terrible public relations problem. I think they handled it brilliantly. I think they did a very good job for their own interests. And so that’s why they reacted that way, and I would never criticize them for it.

How does this have a material impact on WQIS and on insurance in general? The trickle over is simply the expectation of people from the liability side of insurance that have damage, whether or not from an oil spill, potentially may be looking for payments of claims that would not historically have been paid.

We have always expected over time that costs, com- paratively as all other infl atable items, would go up on a spill. But we’ve seen a jump of expectations. To give you an example, when the government sets up a com- mand center you need to run a good command center 24/7 and you probably need 60 to 70 people. Today, command centers are being set up with 300 to 400 people.

And you just have to wonder what they are all doing.

The Coast Guard offi cer who ran the Houston Astro- dome evacuation after Katrina set up the emergency re- sponse, set up a shelter and hospital for approximately 25,000 displaced residents. He did it with 19 people.

Because that’s what you need. You need an effi cient or- ganization in the command center, but that’s not how it works today. And you have to pay for all the people in the command center.

And that’s the way it’s evolving: everybody wants a piece of the spill. Everybody wants their input on the spill. They want to be in the command center where all of the action is.

Let’s discuss the price pressures you alluded to. The price pressures are not necessarily from the insured. Everybody would like to get the best deal, so of course you would like a reduction in your insurance payment, especially when you haven’t had a claim. But what we’re in is an insurer-driven price competition which is a little different. This is where insurers themselves would like a bigger piece of the market and may choose to write business at prices that, in the fi rst instance don’t seem economic, in order to get a larger piece of the pie.

Legislatively, there has been some big activities with the advent of the new non-tank rules and fi refi ght- ing rules, and the relationships between salvors and their clients. What does this mean for insurers in the oil pollution markets? The diffi culty is that in a marine event, you can have Sue and Labor under the hull policy involved, you can have salvage involved, you can have removal of wreck involved, you can have cargo offl oading to save cargo, and you can have pollution.

In the pollution world, you cover the threat of dis- charge or discharge. At what point does a vessel be- come a threat of pollution … where the pollution un- derwriter should respond rather than the hull or the P&I or the cargo insurer. So when you offl oad a cargo from a grounded barge, is that for cargo interest? Is that for pollution interest? Is that for hull interest to refl oat the vessel? So we have a situation where portions of a pol- lution event could be covered by none of them or all of them.

And therein lies a grave diffi culty. You are an insured.

You have paid to place your insurance with three best insurance companies in the United States. Then an event occurs. There is no doubt that you are covered, but who’s going pay you? And that process of deter- mining who is going to pay can take time, and you are

WQIS

An interview with Rich Hobbie, the leader of the Water Quality

Insurance Syndicate (WQIS), the largest underwriter of pollu- tion liability insurance for ma- rine vessels in the United States.

By Greg Trauthwein, Editor

INTERVIEW: SPILL RESPONSE

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